A twenty-minute walk from the town of Peguche (itself a short bus or taxi ride from Otavalo), this 18-metre waterfall drops into a clear pool in a eucalyptus forest. The walk through the forest is pleasant, the waterfall is genuinely impressive, and the whole excursion takes no more than a couple of hours including transport.
The village of Peguche is worth a visit in its own right — it is home to many of Otavalo's most skilled weavers, and several families have workshops open to visitors where you can watch backstrap and treadle looms in action. The workshop visits are informal and free; you're expected to look at what's for sale, but there's no pressure to buy.